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The objectives of this study were to estimate (co)variance components for growth and feed efficiency measures, and to compare selection strategies to improve economic efficiency of gain. Variance components for pre- and postweaning growth, body weight, and measures of feed efficiency were estimated from data collected on 1,047 Targhee lambs over 7 yr. Approximately 21 d after weaning, lambs were group-fed for 4 wk, with ad libitum access to a diet of 37% whole barley grain and 63% pelleted alfalfa hay. Lambs were then individually fed for 6 wk. Lambs were then returned to group feeding for another 4-wk period. The mean feed conversion ratio (gain/intake) for the individual feeding period was 0.11. Mean postweaning ADG for the total 14-wk feeding period was 0.26 kg. (Co)variance components were estimated from single- and two-trait animal models using REML. The selection strategies compared included direct selection, index selection, and restricted index selection. Estimates of (co)variances derived from single- and two-trait models were similar, except for mid-test body weight. Preweaning growth had a low heritability estimate (0.03 ± 0.04) compared with postweaning growth measures (0.25 to 0.39), but all measures of growth were highly correlated (r2 > 0.98). Heritability estimates of measures of gain efficiency were variable (total feed intake = 0.39; feed conversion ratio = 0.26; residual feed intake = 0.26). Total feed intake was strongly correlated genetically with feed conversion ratio (0.79) and residual feed intake (0.77). The estimate of genetic correlation between feed conversion ratio and residual feed intake was low (0.23). Comparison of selection strategies showed the superiority of index selection (ADG, total feed, body weight) for economic improvement compared with other strategies. Economic response to direct selection for ADG was at least twice that for direct selection for feed conversion ratio or against total feed intake, and that for restricted indices (selecting against residual feed, while holding body weight and/or gain constant). Selection for ADG may be a practical approach for indirectly improving efficiency of gain in lambs.